At some point in November, mobile-payments company Square quietly rolled out a new feature to a small number of users on its Square Cash app: the ability to buy and hold bitcoin.
Square Cash users soon started noticing the feature and tweeting about it, and the business press first reported it on Nov. 14, and Square’s stock popped 16% in the week that followed. Bitcoin, already on a bull run, rose 12% in the next 24 hours, with many attributing the day’s gains to the Square news. Clearly, Square offering bitcoin-buying, even if just as a small test pilot, was good for both Square and bitcoin.
But on Monday, BTIG downgraded Square to “sell,” with a price target of $30, and the stock lost all of its gains from the bitcoin news. (Square is still up 212% in 2017; bitcoin is up nearly 1,000%.)
BTIG’s reasoning: Square’s limited path to profitability, and high competition from Clover and Vantiv. And BTIG is not impressed with the bitcoin news, either.
It was a bit coin play for the last 15 points. What can you do? It is still a very valid company. https://t.co/zPw72BwBii
— Jim Cramer (@jimcramer) November 27, 2017
“Shares of SQ have rallied by 259% this year thanks to a series of beat-and-raise quarters and, more recently, the buzz created by the company’s launch of a trial that enables some users of the Square Cash app to buy and sell bitcoin,” BTIG wrote in its research note. “However, we believe SQ’s valuation already reflects emphatic and unimpeded growth while failing to factor in competitive, credit-related and macro risks that did not go away when some investors suddenly viewed its shares as a play on a trendy cryptocurrency.”
There are many reasons to believe BTIG is being far too bearish.
The simplest is this: If bitcoin is more than just a “trendy cryptocurrency,” then Square dipping a toe in is significant for both Square’s future and for the future of bitcoin.
For years, critics of bitcoin and cryptocurrency in general have railed that there’s still no “killer app,” a mainstream use case for crypto beyond just buying and holding as an investment.
Square could compel the killer app if it eventually adds the ability to use the Square Cash app to send bitcoin to friends. Of course, apps and websites already exist that allow this function, from Circle, Uphold to Xapo, but Square Cash, one of the biggest competitors to PayPal-owned Venmo, is easily more mainstream and recognizable than any of those.
BTIG even acknowledged this further down in its note: “We believe bitcoin could provide a marginal contribution to SQ’s revenues if the trial succeeds, it becomes a permanent feature for all Square Cash users, and the company starts to charge a fee for trades.”
Indeed, if Square ends up charging a small fee for buying bitcoin, the profit margins would be high, since bitcoin carries low transaction-processing costs.
— Zach Miles (@zachmil_es) November 8, 2017
Square adding the ability to instantly pay someone in bitcoin would also represent a sort of return to what bitcoin’s original appeal was always meant to be: fast, cheap, peer-to-peer remittances. The currency and underlying payment rail was in its early days touted as an alternative to Western Union: send someone money with shorter wait times and lower fees — reduce the friction. But in the past couple years, the focus has shifted to bitcoin as a speculative investment, and to closed, permissioned blockchains for financial services giants. Square could remind skeptics of the primary appeal of bitcoin since its inception in 2009.
It’s worth noting that the Square Cash app bitcoin trial is not Square’s first foray into bitcoin. The company has accepted bitcoin as payment through its online store, and enabled sellers to deal in bitcoin if they choose, since 2014. Square CEO Jack Dorsey even told Yahoo Finance in October, “There’s nothing that’s more impactful to our business than digital currency and everything that’s happening in cryptocurrency — and the tech behind it. So we are definitely paying attention and are learning as quickly as possible.” And that was before Square added bitcoin-buying to its app.
It’s exciting to bitcoin believers just to have Dorsey and Square showing a concrete interest in the space.
“It’s exciting to see the next wave of mainstream tech companies build crypto products,” says Dan Held, who founded the cryptocurrency app ZeroBlock in 2013 and sold it to Blockchain. “It looks like Square researched what users wanted in crypto and built the magic product to solve that problem. Most new users are entering the space for speculation, it’s unlikely that they will ever even transact on chain, so they built an easy-to-use product that enables them to buy bitcoin. That’s how you onboard the next 100 million users.”
Disclosure: The author owns less than 1 bitcoin, purchased in 2015 for reporting purposes.
Daniel Roberts covers bitcoin and blockchain at Yahoo Finance. Follow him on Twitter at @readDanwrite.